How Global Trade Can Rein in Health Costs

The notion of international trade in health care may seem strange. The issue may also seem far removed from the current policy preoccupations in Washington. However, we believe it is finally time trade played a central role in the current debt debate.

One of the basic facts that the congressional super committee must confront is that the debt problem is not excessive current deficits, but rather a problem with the longer-term budget. And the main reason for the large projected deficits well into the future is the growth in health care costs. Public sector programs like Medicare and Medicaid will be increasingly unaffordable. The health care system must be reformed -- no easy task.

President Obama and Congress sought to do it last year. But it remains to be seen how much the Affordable Care Act will accomplish, if Congress even allows it to take effect. With the future uncertain, anything that we can do to contain costs significantly in other ways must be exploited. We have a partial solution: medical trade, or allowing Americans to take advantage of different forms of international transactions in medical services. The fact that medical care of comparable quality is available at much lower prices elsewhere in the world can be used to rein in costs in the United States.

The idea holds remarkable promise. Here's how it could work:

Patients go overseas for major medical procedures: Modern medical facilities in Thailand, India and other countries would allow patients to have procedures such as heart bypass surgery for tens of thousands or even hundreds of thousands of dollars less than in U.S. facilities.

Medicare and Medicaid could allow patients to use such facilities. The savings to these programs could be split between the patient and the government. This might mean tens of thousands of dollars for both, even after covering travel costs.

Buy into other countries' health care systems: Many retirees have family or emotional ties to other countries. They can be given the option to use their Medicare to buy into the health care systems of Canada, Germany or whatever country they choose.

In effect, the money that the U.S. government would have spent on the beneficiary's Medicare would instead be paid to another country's government so that it would provide medical care. The difference in the cost of care, which could run into tens of thousands of dollars a year, would be split between the U.S. government and the beneficiary.

Import doctors: The United States could benefit by making it easier for foreign physicians to practice in the United States. This could be done with greater standardization and transparency in testing procedures. Foreign doctors would still have to meet U.S. standards, but they could train and test for a license in their home countries. A greater supply of doctors would reduce physicians' compensation in the United States -- and bring it closer to the levels in other wealthy countries.

This would also ease the other problem with last year's health reform law: While it brings almost all people into insurance coverage, it doesn't do enough to ensure that those people will find medical personnel who will treat them!

Medical trade where we "export" patients and "import" doctors -- just two ways of exploiting medical trade -- may seem a strange way to fix the U.S. health care system. But it is clearly an important avenue that has so far not been taken seriously.

We are used to the notion that competition generated by trade helps consumers and disciplines producers. For example, Japanese competition led to lower car prices and better quality; although people can differ on how they view its impact in lowering wages for domestic auto workers. International competition can have the same effect on the health care industry. It offers a route around the political power of the health care industry that may succeed in making health care in the United States affordable.

Dean Baker is co-director of the Center for Economic and Policy Research. Jagdish Bhagwati is University Professor of Economics and Law at Columbia University.